Tax-Benefit Linkage and Incidence of Social Security Contributions: Evidence from France

We study the earnings responses to three large increases in employer social security contributions (SSCs) in France over the period 1976-2010. Using a difference-in-differences estimation strategy exploiting between-worker variation in employer SSC rates over time, we find evidence of full shifting to workers of increases in employer SSCs in the case of strong and salient tax-benefit linkage. In contrast, we find evidence of increased labor cost, i.e., the absence of full tax shifting to workers, at the individual level, within  five to six years after reforms that increased SSCs with little or no tax-benefit linkage. Together with a meta-analysis of the literature, we interpret these results as providing evidence that the salience of tax-benefit linkage matters for incidence.